I was sitting watching my favourite footy the other day, when along came the ‘Compare the pair’ advertisement, explaining how one person got a better result because their superannuation fund didn’t “pay commissions to financial advisers”. Not for the first time I started muttering under my breath, with the occasional audible expletive.
Why is it that industry funds insist in their publicity on attributing the costs of financial advice to superannuation, and only superannuation? Why do they so blatantly devalue advice when, in many cases, they offer it themselves? They clearly know better, because many of them have in-house advice teams. I hope those advice teams are looking at their members’ full circumstances, not just their superannuation balance, because if they aren’t, the members will be poorly served indeed.
If I, as an adviser, charge a fee for looking at the entirety of my clients’ circumstances, somehow the industry funds seem to think that this is a cost that they do not charge for and, therefore, this differentiates them from their competitors.
To be sure, this is a legacy of the commissions versus fees debate. My view of that argument, which seemed to go on forever, was that the debate was largely irrelevant as both sides of the discussion merely represented a means by which the adviser could get paid.
Our advice industry was largely founded on an insurance business which relied on commissions as a means of remuneration. This evolved into being paid as a percentage of the assets we managed, but somehow or other the expectations of what financial advisers do moved on without a similar move in how we are paid.
I would argue that for too long this artificial mechanism has been used by our industry because it was easy and convenient, and did not disrupt the cash flow of the businesses. The institutions have been happy to collect the money for us either in terms of a percentage or in terms of a fixed fee, and we have embraced their co-operation with gusto.
Back to the industry funds. Do they argue that they provide the same kind of advice about the totality of a client’s circumstances at no cost or do they even have the capability to be able to do so. If asked about reducing a client’s debt versus additional contributions to super, what do we think they would say, and what would be their basis for saying it. If they do have the capability, and some of them do, how much do they charge for providing that advice and how is it disclosed in the various statements they send out to their customers.
The ‘Compare the pair’ statement that industry funds don’t pay commissions to financial advisers is misleading. If there was no advice, then in today’s world, the adviser has no business charging for it regardless of how it is calculated. I have clients who maintain their superannuation funds in an industry fund, and I charge a fee based on the value of the work I carry out for them regardless of this fact. What I am, in many cases, unable to do is easily obtain any information from the industry fund which would assist me in providing quality advice to my client, and I am usually unable to be listed as the adviser on our client’s industry fund account.
On many industry fund websites, there is a section which discloses the fees you will be charged if you seek in-house advice from advisers employed by the fund. This seems never to have been taken up if the advertisements are anything to go by, and yet I know a number of excellent advisers who work for industry funds and who seem to be making a pretty tidy living.
Like so many other things, the quality of financial advice often has a proportionate relationship with the amount you pay for it. There is plenty of advice available for free in the pubs or at barbecues across Australia. Our industry superannuation fund friends do in fact charge for advice, as they should. What they don’t do is disclose this fact in their publicity, perhaps on the basis of semantics as to what is a commission and what is an advice fee, and by doing so they seek to mislead for economic advantage. As a profession, we need to take them to task.
Paul Wright is managing director of Innovus Advice Solutions
Along with the ISA, ASIC should be taken to task over all of this but unfortunately the best Federal Minister to potentially do this was removed and ODwyer put in his place. The left leaning Turnbull has made a balls up of this (whether by intent or incompetence or political greed), and so these ad’s continue… It is almost as farcical as the current inquiry into Union corruption that proves that the police as well as the Lib’s really are toothless when it really matters.
Obviously the $5 Million they paid to Unions last financial year came from Tattslotto wins!!!! Well said Paul.
why are the FPA and AFA not making more noise about this??
I have a growing proportion of clients that wish to remain in Industry Funds. I have no major problem with this provided that the client acknowledges that the selection of an appropriate superannuation structure (after all superannuation is just a trust structure that receives tax discounts if they comply with the SIS Act right?) I refuse to be held responsible when another MTAA happens (particularly should the Industry Fund Trustees have to revise their current legislated inflow mandates) however that being said if I focus on the strategy and provide an all encompassing solution to their needs I find clients are happy to pay fees for advice. I’ve seen some great advice from Industry Fund advisers (the proper ones…not the telephone “intra-fund” stuff…that is terrifying) and encourage clients to use them where they wish to pay for advice with their own super funds. Why is it that I have a Best Interest Duty to refer them back to their ISF if they wish to pay for advice from their super and remain in their ISF? Why do they not allow advice fees? (after all we are all subject to BID are we not?) Mind you I’ve also had some clients come back to me and say that they wish to use me as their adviser and that my new brief is to find them a super structure that allows for ALL advisers to issue their invoices for advice.
Industry Super Funds distort the truth, ASIC must be blind, not to see what is really happening, and the majority of complaints about claims guess what come from Industry Super Fund clients, Just where is the Corporate Watchdog on these matters. Industry Super Funds, do pay commission, again why is ASIC standing by and not controlling this spruiking of untruths.
All those salaried advisers, admin and support staff running from nice offices in each capital city wouldn’t cost much would they?
As we know, Union Super Funds dont pay commissions, but it certainly appears that they are happy to receive them. My understanding is that the Union Super Funds pick up commissions for any member who takes out insurance cover over and above the default units that they get from the fund. Double standards much??
How any adviser could recommend a member continue their cover with most Union Super Funds default cover and continue to meet their Best Interest Duty is beyond me. It would be interesting to see what the APL of an adviser at AustralianSuper looks like. If it is limited in scope, how is that any different to the brickbats that are handed to AMP, for example?
I note one of these union funds also sponsor NRL Melbourne Storm. I wonder what that costs their members each year. Just so the unionists and their mates get a corporate box with free everything.
Nicely put Mr Wright.The other concern in some of the larger industry funds is simply the 30-40% described as ‘Alternative Assets’ within balanced portfolios that they refuse to provide detail on. We are happy to work with industry funds however the ‘Know your Product’ rule cannot be satisfied if you cant even see what they are invested in.
How Chant West can do a comparison on funds that do not have assets revalued at market is misleading at best.
Time APRA actually enforced some of its rules across the market, rather than selectively. The only good news is that when infrastructure and Unlisted property feels the bite of rising interest rates and we repeat the 2006_09 cycle, the underlying fund managers will not have advisers to blame. Unfortunately the consumer will be the one losing money.
ASIC should be ensuring that advice is paid for by the members who use it and not bundled up into an overall admin fee.
ASIC have a ideological blind spot on industry funds, driven by their socialist lawyer hatred of commissions. As far as ASIC is concerned, industry funds can do no wrong!
Harsh ? Look at the ASIC Draft RISK SOA and see how they recommend life & TPD cover from their ( mythical ) not-for-profit super fund, TOTALLY IGNORING THE FACT THERE IS A DRASTIC DROP OFF in cover from 35 to 60 in DEFAULT D & TPD.
Well said, Paul. One of the most well constructed arguments on this issue I have ever read. I think my wife is getting tired of my rants every time one of these ads sprouts its lies!
Well said Paul , it is the truth and some won’t like that.
Entirely Agree Paul.
If they ask the industry fund adviser “Is this the best super fund for me?”. What do you think the answer will be? Or “Should I open a SMSF?” I wonder what the answer will be?
Should I have my Income Protection inside or outside Super, and should I have group or retail cover?
In addition to the authors questions about the advice they can give and the advice that they provide. If we assume that they tell the client that the best option is to pay down the mortgage, where does the client pay the bill from? Do Union Super invoice the client directly? Do they take it out of the clients super fund? If they take it from the fund, isnt that a breach of the sole purpose test? Hasnt the fund provided a benefit to a member?
Maybe someone from Union Super can enlighten us.
As with many things, the advertising campaign by the Union Super Funds is simply a case of half-truths masquerading as marketing facts. When a serial half-truther like Bill Shorten can ride a wave of Medi-Scare lies almost all the way to the Lodge, then you can see a pattern of Unions and Labor mates in it for all that they can get. The whole compare the pair isnt about what’s good for people, its whats good for unions and their mates.
Absolutely spot on. The other advertisement currently riling me is the CBUS Radio commercial talking about the fact the member is better off with CBUS due to the advice being in his best interests and not paying fees to Financial Advisers. Like most advisers, its easy to review a clients insurance needs and give them double, if not triple the insurance protection lump sum cover CBUS provide members as a defaut, for typically the same or lower annualised premiums. Now let me ask you, why the higher premium and where did the extra money (surely commissions) go? No doubt in funding the CBUS Radio commercial! They may not call it a commission, but it certainly is the same bloody thing!
Their must be at least 90% of Industry Funds members paying for the Intra Fund Advice services to be available but they do not use this advice.
How is it possible for the Millions of members to be clearly paying for an advice service they do not get from the Industry funds ?
ASIC should be ensuring that advice is paid for by the members who use it and not bundled up into an overall admin fee.